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Next week on the stock market

What to expect from a selection of FTSE 100, FTSE 250 and selected overseas shares reporting next week.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please
seek advice. If you choose to invest the value of your investment will rise and fall, so you could get
back less than you put in.

Sophie Lund-Yates, Equity Analyst

3 April 2020

Technically, as of next week companies are free to report full year results again after the FCA requested a two week delay. Of course, this guidance may change again as uncertainty continues to swirl because of the coronavirus pandemic.

If reporting does go ahead as expected, we may also get to hear from some of the names that were due to release full years last week. Either way there’s plenty to catch up on, and as it stands we expect to be hearing from some of the UK’s biggest retailers.

We should remind readers announcement dates are always subject to change. That’s particularly true at the moment, so we can’t guarantee who we’ll be hearing from next week.

ASOS is under pressure from warehouse workers who feel working conditions make it difficult to follow social-distancing advice. Investors may be worried the group’s planning to temporarily close its online store, especially after Next shut down its online store following similar disputes with warehouse staff. As it stands there’s no evidence ASOS will follow suit. The group has said it intends to remain open, and the government is supportive of online businesses continuing. As ever there are no guarantees though.

That’s not to say coronavirus won’t leave any marks on ASOS. In the short-term there may have been an increase in sales as people shifted to online channels in the wake of movement restrictions across Europe, then the UK. However as Lord Wolfson, Next CEO, said last week: “people do not buy a new outfit to stay at home”. There’s a chance that recent demand for ASOS’ fashion will have slowed as economic uncertainty intensifies and people have fewer reasons to shop for a new frock.

Without knowing how long the disruption is going to last or what the outcome might be, it’s important to look at the core business. ASOS’ operating margins are very thin at the moment at around 1% - its lowest ever. That means it’s more vulnerable to a decline in sales. The group has been trying to improve its margins, and we’ll be looking to see if they’ve inflated at all over the full year.

We’d also like to know how margins are going to be protected in the event of disappointing trading, or other coronavirus disruption. The group may announce some cash saving measures. This can include things like lowering or delaying spending, and we’ll be looking out for any commentary on this.

Coronavirus is better news for supermarkets than for many other industries, provided their supply chains remain intact. Morrison announced a couple of weeks ago that sales trends had picked up in response to the pandemic.

We believe Tesco will have also benefited from the changes in behaviour. But investors should keep in mind that a lot of the panic buying will simply have been a pull-forward of sales that would otherwise have happened later. Still, we’re interested to hear how the recent disruption has affected the UK’s biggest food retailer.

CEO Dave Lewis isn’t leaving until the end of September, meaning the pressure’s off new man Ken Murphy to navigate these unchartered waters for now. But that doesn’t mean we should forget the future.

The board has agreed to sell the Asian business for net cash proceeds of £8bn. The deal is subject to shareholder and regulatory approval, but management had announced it would fund a special dividend. Morrison recently scrapped its special dividend because of current uncertainty, and we can’t rule out a similar decision from Tesco next week. The disruption means the group might decide the cash is better kept on the balance sheet in case conditions get tough, and as no one’s signed on the dotted line the pay cheque isn’t guaranteed yet either.

HomeServe offers home emergency, repairs and heating services, including contracts with some utility companies. That means it’s still open for business because it’s providing essential services – although it’s prioritising emergency cases at the moment. That means that even during the disruption it can still expect a revenue stream.

In fact its services mean HomeServe’s income is more reliable than other businesses – people will always need to repair their home if something goes wrong. To some extent investors will be hoping not much has changed in next week’s full year trading statement.

One thing to look out for is growth in the US business. This is the biggest growth lever at HomeServe’s disposal, because of the size of the potential market. It’s the biggest division by revenue and makes up about 39%, but has still been growing at a strong rate, helped by acquisitions. As it stands the group sees the North American business generating around $230m of underlying operating profit from a Membership customer base of 6m to 7m, and investors will want to know if this plan is on track.

At the time of writing, the shares change hands for 21 times expected earnings which is a little higher than the ten year average. The share price could be sensitive to a fall if growth disappoints.

Hargreaves Lansdown’s Chair and Non-Executive Director is also a Senior Independent Director of Tesco plc.

Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Past performance is not a guide to the future. Investments rise and fall in value so investors could make a loss.

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Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek
advice. If you choose to invest the value of your investment will rise and fall, so you could get back
less than you put in.

While the causes have been different, we've seen markets move like this before. We take a look at what's happened in the past.

Emilie Stevens, Equity Analyst

01 Jun 2020 | 6 min read

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